Chapter

The Effects of Oil Price Changes on the Industry-Level Production and Prices in the United States and Japan

Fukunaga Ichiro, Naohisa Hirakata and Nao Sudo

in Commodity Prices and Markets

Published by University of Chicago Press

Published in print March 2011 | ISBN: 9780226386898
Published online February 2013 | e-ISBN: 9780226386904 | DOI: http://dx.doi.org/10.7208/chicago/9780226386904.003.0007
The Effects of Oil Price Changes on the Industry-Level Production and Prices in the United States and Japan

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This chapter investigates the underlying causes of oil price changes and their transmission mechanisms in the United States and Japan. The oil price changes are decomposed into their component parts and the dynamic effects of each component on industry-level production and prices in both countries is estimated using identified vector autoregression models. The models incorporate two major extensions to the standard models. Instead of treating oil price changes as exogenous shocks, the underlying demand and supply shocks to the global oil market are identified. The positive response of production to the oil-specific demand shock might be the result of global demand shifts, especially in automobiles, toward more oil-efficient products made in Japan. Estimation results for the domestic macroeconomy blocks for the United States and Japan are discussed. Transmission mechanisms of oil price changes are surveyed and the estimation results are interpreted in more detail.

Keywords: oil price changes; vector autoregression models; global oil market; macroeconomy; global demand shifts

Chapter.  11861 words.  Illustrated.

Subjects: Business and Management

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